Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Asset Allocation with Gold, longer term.

(Work in progress.)

With Gold setting record prices and concerns about the USD$ mounting,  many investors are wondering about this unfamiliar and too-long ignored asset class.  For the hypothetical investor retiring at Age 65 in 2010, I would like to consider illustrate how a gold allocation impacts portfolio returns, using the annualized real returns for three (3) investments for 10 year- and 20 year-periods and factoring the real inflation rate (as recorded on John William's ShadowStats.) 

For simplicity sake, three investment represent Commodities, Equities & Fixed Income.  Accumulated gold bullion is hypothetically purchased with a one-time 3% commission), held without storage cost and neither traded nor sold within any period.  Two no-load mutual funds, Vanguard 500 Index Investor (MUTF:VFINX) and Vanguard Total Bond Market Investor (VBFMX) are hypothetically held in a no-cost tax-deferred account, shares sold/bought to rebalance along a familiar risk-adjusted glide path towards an increasingly conservative allocation. 

For the past 10 years, Gold is UP +247% in nominal terms (+13.3% /annualized), but in REAL inflation terms (-8.9%/ ann.) that's just +3.2% per annum.  

In the same time-frame, the S&P500 (VFINX) is DOWN -11.6%, ann., the real inflation-adjusted total return.

For the past 20 years Gold is UP +188.5% in nominal terms (+5.4% /annualized), but in REAL inflation terms (-7.8%/ ann.) that's -2.8% per annum.  With gold prices suppressed.

The S&P500 (VFINX) is DOWN -0.71%, ann. total return, again factoring that same real inflation after 1989.  In the frothiest, bubblicious of markets!   

Even if you don't believe gold prices were artificially suppressed and equities ridiculously inflated, there's obvious benefit to holding significant allocations of each longer term.